BANNING OF LETTING AGENTS FEES PAID BY TENANTS – A RESPONSE TO THE
DEPARTMENT FOR COMMUNITIES AND LOCAL GOVERNMENT (DCLG)
CONSULTATION
INTRODUCTION
NALS www.nalscheme.co.uk is a licensing scheme for lettings and management agents
operating in the Private Rented Sector. NALS agents are required to:
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deliver defined standards of customer service
operate within strict client accounting standards
maintain a separate client bank account
be included under a Client Money Protection Scheme
Agents must provide evidence that they continue to meet NALS criteria on an annual basis,
in order to retain their licence. The scheme operates UK wide and includes 1500 firms with
over 2000 offices.
NALS also administers the SAFEagent campaign www.safeagents.co.uk the purpose of
which is to raise consumer awareness of the need to ensure that landlords and tenants
should only use agents who are part of a Client Money Protection Scheme, which offers
reimbursement in the event that an agent misappropriates their money. The campaign is
recognised by Government and our logo appears in their How to Rent guide.
GENERAL COMMENTS
NALS welcomes the Government’s commitment to a better Private Rented Sector offering
safety and security for tenants.
However, NALS does not support a ban on letting agent fees to tenants, because it believes
that this will not deliver the outcome to which the Government aspires. NALS believes the
vast majority of agents charge tenants fair and reasonable fees for the services that they
provide. A survey of 339 firms carried out by NALS in 2016 found that, on average, agents
charged tenants £172 (including VAT) for the services they provide to them. Only 8 firms
charged over £400.
In our view, the minority of agents who charge unreasonably high fees could be brought into
line by proper regulation and enforcement. The fees ban is, therefore, a disproportionate
measure. Furthermore, NALS does not believe that abolishing letting agent fees to tenants
will make the market more competitive. In practice, it will reduce the range of services on
offer to tenants and make it more difficult for tenants to access the Private Rented Sector
(PRS). Healthy competition amongst agents could actually be reduced as smaller agents are
forced to close or are acquired by larger chains.
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NALS believes that in order to ensure a stable sector and fairness for all - tenants, landlords
and agents - the implementation of a fee ban must be set within the context of a move to
proper, comprehensive regulation of all lettings and management agents. By honing in on
the issue of fees to tenants in isolation, the proposed ban risks undermining the business
models of the majority of agents whose charges are reasonable.
Smaller agents will be particularly hard hit. Many of these agents currently provide a
professional, local service at a reasonable cost. They will come under increased financial
pressures if they are unable to charge for basic services and, if they disinvest as a result of
their businesses being no longer viable, then competition will decrease. Letting agents who
remain in the sector will invariably pass on the revenue loss to landlords, who in turn will
increase rents. Tenants will then have to pay this increased rent until the end of the tenancy.
In NALS’ view, the main issue affecting affordability for tenants is not agents’ fees but rather
demand for decent privately rented housing exceeding supply. We would suggest that there
is a desperate need for more rented accommodation, managed professionally by accredited
agents. Growth could be facilitated by introduction of a coherent and comprehensive
framework of regulation. Single issue measures, such as the proposed fees ban, are not
ultimately in the interests of the consumer.
CONSULTATION QUESTIONS
Question 1
Do you think that the transparency measures introduced in the Consumer Rights
Act 2015 have helped to drive up standards and improve competition? Please
include reasons.
In our view, the impact of these existing regulatory measures has been limited. We are
aware that they have improved standards among agents who were providing a good service
anyway. However, there is little evidence it has increased competition or helped to address
poor practice amongst rogue agents.
This is because of the piecemeal approach that has been taken to regulation of the PRS, as
well as lack of robust enforcement by Local Authorities. It is worth noting that, in a recent
NALS survey of local authorities, 76% of those who replied said this area of work is not
considered to be a high priority. 93% said they had issued no Final Notice / civil penalty for
non-compliance in the last two years. This is a concern, as, under a fees ban, Trading
Standards will require an in depth knowledge of the services that agents might still be able to
charge for and effective enforcement will require effective punitive action, commensurate
with the failing.
It is also a concern that, following the Consumer Rights Act 2015, no guidance was issued to
agents on how to comply with the new measures. This is indicative of the poor approach that
has been taken to regulation to date. Properly resourced enforcement under a more
coherent regulatory framework could have significantly increased the positive impact of the
Act.
The fees ban is yet another piecemeal measure. What is needed instead is a coherent
regulatory framework. Furthermore, under a model that in effect stipulates a “Zero Fee” to
tenants, there will be little incentive for agents to provide better services to them. This will
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reduce consumer influence and choice, by undermining the tenant’s status as a customer of
the agent.
Question 2
Do you agree that the ban on letting fees should also include a ban on letting fees
charged to tenants by landlords and third parties? Please include reasons.
In our view, if lettings agents are prevented from providing services to tenants (because they
will not be able to charge for them) it is inevitable that there will have to be “third parties” in
the supply chain. They may include organisations such as Tenant Referencing Firms.
Under a fees ban, there would be a number of possible tenant referencing scenarios:
1. The landlord might commission a lettings agent to obtain a reference for the prospective
tenant from a referencing firm. The landlord will then pay the lettings agent for that
service. They may or may not pass the cost on to the tenant
2. The landlord might deal with a referencing firm direct. The landlord will then pay the
referencing firm for the service. Again, they may or may not pass the cost on to the
tenant
3. The landlord might expect the prospective tenant to source their own reference. The
tenant will pay a referencing firm for that service
4. The prospective tenant might ask the letting agent to assist with obtaining a reference. In
these cases, the agent will only be able to sign-post the tenant to a referencing firm. The
tenant will then pay the referencing firm for that service.
In all these scenarios, it is essential that:
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The referencing firm that carries out the checks is independent (of both agent and
landlord) and reputable - and has a complaints procedure that is fit for purpose.
Accreditation of referencing firms could, in our view, form part of a wider regulatory
framework.
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There are robust redress arrangements available to the end customer, be they the
landlord or the tenant. There is a risk that the tenant’s access to the redress schemes
will be broken if a lettings agent is not involved.
Other third party suppliers may include solicitors, who tenants may need to instruct in
respect of tenancy negotiations that would hitherto have been handled by the lettings agent.
It is interesting to note that the Competition and Markets Authority carried out a review in
2016 of solicitors’ fees and concluded that “competition in legal services for individual
consumers and small businesses is not working well. In particular, there is not enough
information available on price, quality and service to help those who need legal support
choose the best option. Therefore, directing tenants to solicitors with queries regarding
tenancy agreements may end up costing them more than if they dealt with an agent. It will
also be a challenge to ensure that robust redress arrangements are available.
In our view, “a ban on letting fees charged to tenants by landlords and third parties” would
prove problematic on a detailed level. If the term “letting fee” is taken to include (for
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example) referencing charges and solicitors fees, it would almost certainly be unsustainable.
Banning tenants from sourcing these essential services from “third parties” would be both
unfair and illogical.
Double Charging
We are also concerned that the consultation paper continues to promote the perception that
agents “double charge” landlords and tenants for the same service. This is a misconception.
In reality, charges for some services (such as negotiation of tenancy terms, inventory etc.)
are properly apportioned between the landlord and the tenant.
Question 3
Do you agree that all letting fees, premiums and charges to tenants that meet the
general definition of facilitating the granting, renewal or continuance of a tenancy should
be banned with the exception of:
• The rent;
• A refundable deposit;
• A holding deposit to take the property off the market whilst reference checks are
undertaken; and
• In-tenancy property management service charges that directly relate to an action or
service carried out at the request of the tenant or as a result of the tenant’s actions?
If no, please list any fees, charges or premiums aside from
those listed above that you think an agent, landlord or third party should be
permitted to charge
NALS does not agree that all letting fees, premiums and charges to tenants that meet the
general definition of facilitating the granting, renewal or continuance of a tenancy should be
banned.
We do, however, welcome the exception of:
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a refundable deposit
a holding deposit to take the property off the market whilst reference checks are
undertaken and
in-tenancy property management service charges that directly relate to an action or
service carried out at the request of the tenant or as a result of the tenant’s actions.
NALS understands that agency fees can be perceived as unaffordable, when viewed
alongside deposits and the other costs tenants’ incur when moving. We know that many
tenants have little understanding of why fees are charged, or what for. However, we believe
that banning of fees (other than for the listed exceptions) would limit the services that can be
offered to tenants by agents. Furthermore, a ban on legitimate fees may lead to tenants
paying more over the longer term, through increased rents that cover increased fees to
landlords.
Agents provide services to tenants as well as landlords. For example, they typically offer
tenants a choice of properties, with viewings arranged at their convenience. They carry out
referencing checks for both the tenants and any guarantors. They also help to negotiate the
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Tenancy Agreement, explaining to both parties what the agreement covers and the
obligations that come with it. They take deposits, if required, and provide protection of the
deposits through the relevant protection schemes.
In addition, agents offer tenants an initial check in service at the start of a tenancy which
ultimately will help ensure the tenant recovers their full deposit at the end of the tenancy.
NALS believes that where an agent provides a clearly defined service to a customer – the
tenant - that service should be paid for by the recipient.
Agency staff are trained and possess the right level of knowledge, to ensure that neither
their landlord clients nor their tenant customers are unfairly disadvantaged. However, with
the abolition of fees, it is highly likely that letting agencies will have to reduce staff and
training budgets. They will have to refer tenants to solicitors or legal specialists on tenancy
agreement queries. This will result in higher costs and possible delays.
We note that the consultation paper recognises that agents do provide significant services to
tenants, in particular in the areas of referencing, inventory and tenancy negotiation. At
paragraph 24, the paper provides quite a lot of detail on these. However, it fails to recognise
the basic fact that tenants are the customers who purchase these services. Not all of the
agent’s services are functions carried out on behalf of the landlord.
In light of the above, we believe letting agents should be able to charge tenants for services,
in addition to the exceptions, such as:
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Tenant referencing
Guarantor referencing
A share of inventory costs
Negotiating the tenancy with the landlord
Negotiating variations to the tenancy and special requirements
Dealing with changes of sharer
Advice on affordability and benefits
Incidental services such as key replacement etc.
Furthermore, in our view, it is reasonable to charge for some of the above by way of a fixed
“administration fee”. Some tenants actually prefer an all-inclusive price which is specific as to
what service is covered, as an alternative to paying separately for itemised costs.
The Right to Rent
We would also argue that it is reasonable to charge some tenants for help with issues arising
from Right to Rent legislation. In many cases, checking a prospective tenant’s Right to Rent
which is a legal requirement, is a fairly straightforward task. However, in cases where the
checks raise complex queries, working with the prospective tenant can be very time
consuming for agents. Examples where considerable agent time is spent assisting the
prospective tenant include:
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Applicants of non-EEA status, married to individuals with a time limited UK visa
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Applicants with documents at the Home Office, as part of a visa application
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Postal delays affecting receipt of documentation from the Home Office. Agents can
spend significant time liaising with the applicant and the Home Office, establishing how
best to proceed and advising both the landlord and applicant, to ensure that the tenancy
is not jeopardised
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Applicants with non-standard documentation. Agents often have to work with the
applicant to review all the documentation options, in order to eventually examine one
which is acceptable under the guidance
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Problems with entry stamps on non-EEA passports. This can involve the agent in lengthy
liaison with the Home Office and the airport immigration team.
It is important to bear in mind that the agent is dealing with a prospective tenant (as well as
their family, which often incudes children) regarding their future home. The stakes are high
and it is incumbent on the agent to:
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Take time to advise applicants and explain the Right to Rent requirements to them,
educating them on appropriate documentation and arranging appointments etc.
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Deal with unusual scenarios. Often, agents spend time discussing cases with the Home
Office, only to find there was nothing they can do
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Liaise with Home Office regarding non-standard enquiries to the landlord checking
system
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Attempt to resolve any issues that might have arisen through error on the part of the
prospective tenant
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Attempt to resolve any issues that might have arisen through error on the part of the
authorities
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Double check all aspects of the process, to ensure that any decision to deny a home to a
prospective tenant is valid
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Communicate the outcome in a timely and sensitive manner, spending time consoling
applicants who are facing the possibility of not being able to commence their tenancy.
If this approach had to change as a result of the agent being unable to charge fees to the
tenant (for example, as part of referencing charges) a much more rigid approach would have
to be adopted. Furthermore, if agents found themselves unable to resolve complicated
cases, bias might creep in to selection of tenants by landlords. An unintended consequence
might be bias towards British passport holding tenants whose checks might be perceived to
be more straightforward. Fundamentally, under a ban, the agent would have less time
available to ensure fair access to the PRS.
Lastly, effective implementation of the Right to Rent requires agency staff to have the right
skills, in being able to recognise certain documents and understand immigration rules.
However, training costs need to be covered as part of the agent’s business model. If fee
income is reduced, this will reduce agents’ capacity to train staff to take a thoroughgoing,
customer-focussed approach to the Right to Rent. It will also reduce agents’ capacity to
resolve complex cases without error.
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Question 4
Do you think that refundable deposits, payable at the outset of a tenancy, should
be capped? If yes please indicate the level of the cap.
NALS agrees that tenants should pay a refundable deposit at the outset of a tenancy. If
there is to be a cap on deposits, this should be set as a percentage of the rent.
Question 5
How can Government best support the sector to expand or develop
new approaches to minimise the financial burden on a tenant at the
outset of a tenancy? For example, enabling tenants to pay their deposit
in instalments over the first few months of the tenancy or using a line of
credit approach where an agreed deposit amount is blocked on a
tenant’s credit card.
NALS recognises the affordability issues that deposits can cause for some tenants. We
would be very supportive of innovation in this area. Specifically, NALS believes that the
government should promote measures such as:
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Passporting of deposits from one tenancy to another
Interest free loans from employers
Local or national government-funded deposit guarantee schemes
Social Lettings Agencies
However, we foresee serious problems with the idea of using a line of credit approach,
where an agreed deposit amount is blocked on a tenant’s credit card. Such an approach
may be appropriate in other sectors, such as car hire, but is hardly suited to long term
deposits. Credit cards may expire during the course of the tenancy. Furthermore, the tenants
indebtedness would be increased in instances where the amount blocked becomes payable,
in full or in part.
Question 6
Do you think holding deposits, to ensure that a property is taken off the market,
should be capped? If yes please indicate the level of the cap.
NALS agrees with the continued use of re-fundable holding deposits If there is to be a
cap on these, this should be set as a percentage of the rent.
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Question 7
Agents may occasionally provide bespoke, non-standard services to tenants at the top
end of the market, for example, when arranging a property for someone currently living
aboard who is relocating to the UK. Do you think there are premium parts of the market
where a different approach to handling letting fees may be warranted?
NALS does think agents should be able to charge for bespoke services. However, we do not
agree that these services are only provided at the top end of the market. In our view,
bespoke services can include services to:
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Vulnerable Families and Individuals – who tend to be on low incomes and/or benefits
and need considerable advice on the sustainability of their tenancy
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Students – who need to find a suitable home, through a reputable agent, in advance of
starting their studies
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Sharers – who often want to make changes to their tenancies outside of the terms
originally agreed with the landlord
Many tenants request additional services from agents, both at initial lettings stage and during
their tenancy. These include help with benefits/affordability, variations in the tenancy and
changes of sharer. Under a fees ban, we are concerned about how supportive services to
these groups will be funded. If agents are banned from charging, these services may not be
provided at all, leading to restricted access and reduced choice for tenants.
Bespoke Services for Tenants Claiming Housing Benefit (HB) or Universal Credit (UC)
Tenants claiming HB or UC often require a more intensive and time consuming service from
agents. This is because, in many cases:
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Landlords need to be reassured that the tenant will be able to afford the rent from their
benefits (or combination of wages and benefits)
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Prospective tenants need to be confident that they can afford the rent, on top of other
immediate and longer term outgoings
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Those in receipt of Housing Benefit /Universal Credit tend to rely on a guarantor, which
complicates the referencing process
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Claiming HB or UC, whilst strictly speaking a matter solely concerning the tenant
themselves, is often a complex process. In the absence of advice from elsewhere,
agents often find themselves dealing with HB and UC issues in depth, at sign up stage
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Tenants claiming benefits tend to be among the least likely to have consistent access to
the internet, or to be fully IT literate. UC in particular requires the tenant to claim and
communicate on-line
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Tenants claiming benefits also tend to be among the most likely to have other
vulnerabilities (for example, around their ability to communicate) For these prospective
tenants, dealing with the bureaucracy surrounding HB or UC, on top of the other
challenges around finding a new home, can be a serious problem.
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These factors mean that agents can spend a considerable amount of time and effort in
matching a prospective tenant to a suitable property owned by a landlord who is happy to
accommodate benefit claimants. Background checks tend to be more extensive and
guarantors are more likely to be involved. The guarantors themselves need to be checked to
ensure they can meet any liabilities. This can involve considerable amounts of chasing up,
with agents often incurring abortive costs.
Prospective claimant tenants can often be single women with children, who are eligible for a
wide range of benefits on top of HB (or as part of their UC if applicable) Agents tend,
therefore, to pay great attention to assessing affordability. Local Housing Allowance (LHA)
rates often fall short of the rent actually payable. Calculations need to be carried out to
ensure the tenant can meet the shortfall.
As regards the HB or UC claim itself:
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Agents can spend considerable time helping the prospective tenant to claim on-line
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A letter confirming details of the tenancy has to be prepared, as required by the DWP
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Telephone waiting times can be considerable when raising queries with the DWP call
centre
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Considerable benefits documentation needs to be collated and added to the tenant’s file
at the agent’s office
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During the tenancy, support needs to be provided to the tenant. Administrative problems
and benefit sanctions can prove time consuming and sometimes result in as much work
as is required for a new claim
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Problems with benefits can result in arrears. Build-up of arrears is in neither the
landlord’s nor the tenant’s interests and agents take considerable steps to prevent it.
However, UC rules can create problems as to whether or not claims should be made
against rent protection insurance.
Dealing with all the above can demonstrate a significant service being provided to the
tenant. This service cannot reasonably be described purely as marketing and management
carried out on behalf of the landlord. If, however, costs were to be passed on to the landlord
and rents were to be raised to cover them, tenants would probably end up paying more in
the long term. Alternatively, if the service was not provided at all, then:
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Tenants would have to resolve all benefits issues themselves and prove this to the agent
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Other agencies would often have to provide advice to assist with this, especially in the
case of vulnerable individuals
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Other prospective tenants would have to source legal advice and organise their own
references and those of guarantors
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All prospective tenants would have to assemble considerable amounts of documentation.
It should be noted that claimant tenants tend to stay in their homes for the long term, when
compared to other more mobile groups such as professionals and students. However, in the
absence of the service provided by agents, many claimant tenants would find it virtually
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impossible to access the PRS. Some landlords would probably stop being prepared to
accommodate claimant tenants altogether. On the other hand, some rogue landlords might
be happy to deal directly with claimants, without carrying out the proper checks and without
being willing or able to offer support and advice.
Vulnerable low income tenants and those on HB/UC will be particularly affected by the fees
ban, as the shortfall between benefits and actual rent paid will increase putting more
pressure on tenancy sustainment. A consequence could be increased homelessness,
putting greater pressure on Local Authorities in fulfilling statutory homeless obligations.
There would also be greater pressure to provide more social housing. The effects on health
and wellbeing of those threatened with losing their tenancies would also put greater
pressures on health budgets.
Bespoke Services for Students
The service that agents provide to students varies from the standard process described
above in a number of respects. To a large extent, this is because students need to find a
home well in advance of commencing their studies. They also need to be sure that they have
secured a home before they move into the area. This means that:
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They will need expert, honest, unbiased advice on the local student lettings market. It is
highly likely they will experience problems if they use unregulated agents or try to deal
with some landlords direct
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Viewings will be organised well before the start of the academic year, at the student’s
convenience. This is particularly important as they will often be travelling some distance
to view the property.
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Even in cases where first year students have already lived in the area, family members
will often be travelling some distance to help ensure that their choice of property is of a
suitable standard
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Commitment to the property needs to be firm, as in the student lettings market it is
standard practice to fix up accommodation for the coming academic year. This means
that some sort of “fee” needs to be charged, to secure the property. The student will then
know that the property will definitely be available when they need it.
Guarantor referencing is particularly important in the case of students, as many will not have
a financial track record. Dealing with guarantors is, therefore, an integral part of the service
provided to the prospective tenant and, in many cases, the student’s family. Furthermore,
variances to the rent and tenancy agreement may have to be negotiated with the landlord,
who is sometimes located overseas.
When moving in, agents dealing with students tend to provide much more support than is
usual, as many will have no experience as tenants, except perhaps in halls of residence.
This means that:
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Agents often need to advise the student on the basics of tenancy, being a good tenant
and avoiding the potential pitfalls
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Agents tend to provide considerable help with the process on moving in, in an attempt to
make it a “no hassle” experience for the student
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Agents often keep utilities in their name and act as a go-between for the student in
dealings with the utility companies. Taking responsibility for utilities causes considerable
work for the agent
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Wi-fi is often arranged on the student’s behalf, as it is so important to their studies
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Extensive advice is given on living in the area, including waste disposal, parking, location
of hospitals, GPs etc.
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Close attention will be given to the safety considerations surrounding multiple young
people sharing.
During the course of the tenancy:
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Students are more likely than other groups to require support, for example with lock outs,
lost keys and accidental damage. This requires the agents to be both approachable and
readily available (24/7) to deal with problems
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Agents need to be able to use the wide range of the communication tools favoured by
students. For example some will wish to get in touch by Facebook etc.
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Changes to sharing arrangements are more likely to occur than with other groups, for
example as a result of breakdown in new relationships
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Agents often get involved in tenancy support and prevention of eviction. For example,
agents often try to help with underlying financial issues that can cause arrears (such as
student loan problems) This can help to ensure that the student avoids building up a
poor track record as a tenant.
At the end of the tenancy, students will often be given first refusal on renewals at the current
property. In other cases, the agent will help with (say) third year accommodation. When the
student finishes their studies, the agent will work with them to ensure a smooth check out,
resolving any issues with damage or losses, ensuring that the deposit is returned minus only
legitimate deductions. The aim will be to ensure that the student has built up a good track
record as a tenant, having enjoyed a home environment conducive to their studies.
Bespoke Services for Sharers
Agents’ fee structures for sharers vary. Many charge a relatively small amount for each
additional person, on top of the main “lead person charge” in respect of setting up the
tenancy as a whole. However, it should be noted that the service that agents provide to
sharers varies from the standard process in a number of respects. The extra work carried
out primarily relates to the number of changes to the individuals accommodated that tend to
take place during the tenancy period.
Every time a sharer moves out and a new one moves in, agents are required to:
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Facilitate the outgoing tenant’s exit from their fixed term tenancy
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Seek approval from the landlord to the changes being made
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Explain any liabilities and responsibilities to outgoing, current and incoming individuals
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Send a change of sharer form to the all tenants - outgoing and incoming - for them to
complete
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Reference the incoming tenant and any guarantor
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Carry out Right to Rent checks on the incoming tenant (and possibly all tenants–
depending on the original start date of the tenancy) The agent has to meet each
individual in person and see original documents
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Send a deposit waiver letter to the outgoing tenant, ensuring that they handle the
transfer of the deposit and notify the agent
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Update the relevant tenancy deposit scheme website and certificate
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Prepare a new tenancy agreement. This entails reviewing previous clauses and
transferring any that are necessary. Incoming tenants can also have “wish lists” of
changes to the detail of the agreement. These need to be brokered with the landlord
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Check whether the outgoing tenant is the tenant paying the rent on behalf of the others,
setting up new payment arrangements if necessary
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Arrange for smoke alarms etc. to be tested on start date of new tenancy.
It should be stressed that this activity has to be carried out to implement changes to the
tenancy that have been initiated by one or more of the tenants, not the landlord. If these
services could not be provided and charged for by the agent, incoming, outgoing and
remaining tenants would probably need to engage a solicitor. If only a minimal service could
be provided, it is likely that changes to sharing arrangements would become protracted, time
consuming, conflicted and expensive. The agent’s role as facilitator and co-ordinator of the
process could be seriously undermined.
Charging for Bespoke Services
In light of the above, NALS believes that agents should be able to charge for bespoke
services to all the groups listed above, as well as for “re-location” services at the top of the
market.
Alternatives to an outright ban on fees might include an ability to charge:
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on a one off basis for specific services that are requested by the tenant
for pre-tenancy and move-in assistance, to cover services that help the tenant to access
or move within the PRS, that cannot reasonably be characterised as marketing the
property for the landlord
flat rate fees at pre-tenancy and move-in stages, with other items charged on a one off
basis
capped fees for any or all of the above, taken collectively or individually.
If set within the wider context of proper regulation, measures such as these (or combinations
of them) would help to mitigate the risk that essential services to tenants might disappear
altogether.
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Question 8
What do you think will be the main impacts of the ban on letting fees
paid by tenants? Please include any unintended consequences that
you believe may arise.
In our view, there are serious risks associated with the proposed ban. These are likely to
affect tenants, landlords and lettings agents.
Impact on Tenants
In our view, rents are likely to rise, if the fees for essential services provided to tenants – for
example, referencing, deposit administration and the tenant’s share of inventory costs - are
passed on to the landlord. Landlords may decide to increase rents in order to cover the
higher fees they are likely to incur. Tenants may end up paying more in rent than in the
agency fees they typically pay at the moment.
If rents rise, this could result in tenants paying more over the life of a tenancy than if fair and
reasonable charges were levied in advance. This is why NALS does not support the idea of
spreading the agent’s fee across the first six months of the tenancy – or any other period.
If agents’ services to tenants were to be reduced due to lack of funding, this could result in:
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Block viewings only or reduced choice in viewing times for prospective tenants
Reduced scope for negotiation of individual requirements in tenancy agreements
No variations in length of tenancy or scope for early break
Less choice of move-in date
Less scope for change of sharer
Tenants having to provide much more information themselves
Tenants having to provide their own references
Tenants having to download their own documentation
Less information on property condition and inventory
Less help with, for example, utilities or right to rent queries
Tenants having to source their own legal advice – or rely on unregulated/unqualified
advisors
Less or no help with benefit related issues.
Certain types of tenant will be particularly disadvantaged. These include benefits claimants
(who are more likely to be vulnerable) as well as students and sharers, who often want to
vary the terms of their tenancies. Agents provide an important service to these groups, but
will be unable to resource this if fees are banned. This could result in:

Increased levels of arrears and eviction

Local Authorities and Voluntary Agencies having to provide much more advice to tenants
and prospective tenants, as well as having deal with the consequences of increased
homelessness
Furthermore, tenants who rent via agents currently have access to statutory redress
schemes. This access will be lost firstly if landlords choose to manage properties
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themselves, in order to avoid higher agency fees. By-passing of lettings agents will lead to
the loss of access to statutory redress schemes for tenants
Impact on Landlords
Any increase in fees to landlords is likely to increase any reluctance they may have to
engage a reputable agent. Service and property standards are likely to fall - and there will be
increased financial pressure on landlords to self-manage
Furthermore, some small landlords may simply quit the market when faced with the burden
of absorbing costs previously met by tenants, coupled with changes in Stamp Duty Land Tax
and Mortgage Interest Relief.
Impact on Agents
With reduced income, agents will be unable to maintain investment in training and
development of staff. Many agents have staff capable of preparing legal documentation with
support from a landlord and tenant specialist solicitor. If agents are no longer able to provide
this service, this will definitely disadvantage tenants.
Agents provide specific, identifiable services to tenants. If they are banned from charging for
these services, there are obvious risks:

Landlords may have to be charged instead, leading to higher rents and/or fewer
landlords working with reputable agents

Tenants may have to source these services elsewhere, leading to higher cost and
questionable quality. It is, in our view, unlikely that landlords will pay for referencing,
especially if guarantors are involved. Landlords may be especially unwilling to pay for
guarantor referencing – and may prefer tenants who do not need guarantors

Service levels may be diminished, leading to poor practice in referencing (tenants and
guarantors) tenancy negotiations and check in/check out procedures.
Increased self-management by landlords is of particular concern when set against a
backdrop of a lack of regulation in the sector as a whole. Increased professionalism in the
sector to a large extent depends upon landlords’ engagement with reputable, regulated
agents.
As regards the agents themselves:

With reduced income, agents will be unable to maintain investment in training and
development of staff

Service standards are likely to fall, due to staffing cuts and unavoidable de-skilling

More complaints are likely to find their way to the redress schemes, deposit schemes
and regulatory bodies

Codes of Practice would need to be revised in light of what service might reasonably be
delivered with reduced resources

Healthy competition amongst agents could decrease as smaller agents are forced to
close or are acquired by larger chains.
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It is important to recognise that agents play a “paralegal” role when providing services to
tenants and setting up tenancies. What would happen if agents stepped back from this
process because they did not have the resources and were not paid for their services? In
some cases, voluntary advice agencies, such as Citizens Advice Bureaux, might step in.
However, most tenants would have to pay for legal advice.
Impact on Competition
In NALS’ view, the fees ban will not improve competitiveness in the sector. The resulting
cost pressures on agents may well lead to job losses and closures of branches and/or result
in smaller agents moving out of the business altogether. This would be to the benefit of
larger chains and/ or agents who also handle sales and who may be in a stronger position to
share overheads and operating costs. The resulting concentration in the number of letting
agents is unlikely to increase choice for either tenants or landlords.
With this in mind, NALS has written, on behalf of the Fair Fees Forum, to formally request a
Competition and Markets Authority review of the market in lettings and management agents’
services to tenants. In our view, an intervention by the Competition and Markets Authority is
required, as a blanket ban on fees could potentially be a major threat to consumer welfare.
Currently, an extensive network of lettings and management agents compete vigorously to
win business from both landlords and tenants. A fees ban would in effect prevent agents
from acting as a service provider to tenants, thus seriously undermining consumer choice. A
blanket ban on most fees may actually exacerbate matters, by preventing the majority of
agents, who offer good quality and value for money, from providing any services to tenants
at all.
We agree that, when markets work well, efficient businesses are rewarded and productivity
growth is higher. Currently, agents who provide a good service to tenants are rewarded by
being able to charge fees. However, agents cannot be expected to provide services for
nothing. It is, in our view, anti-competitive, as well as against the interests of consumers, to
reduce competition by excluding lettings and management agents from this market.
A Competition and Markets Authority review would help to protect competition, by ensuring
that the Government’s decision about the precise nature of the fees ban would be based on
more intelligence about the market in which agents operate. It would lead to better
understanding of what fees currently pay for, what services are provided and how greater
competition might be facilitated. It would help to improve the way the market works for both
tenants and landlords, enabling both to become better informed consumers of services. All
this would help to promote confidence in the PRS, a market of central significance to a large
and growing number of consumers.
In summary, it is clear that, in practice, agents provide a range of services to tenants. Many
of these services cannot reasonably be viewed purely as part of the agent’s role in
marketing, letting and managing a property on behalf of the landlord. If agents are prevented
from charging tenants for services, the cost of providing them will have to be met from
elsewhere. Alternatively, services will have to be withdrawn, leaving tenants to do without
them, or source them independently.
Unintended Consequences
In our view, the fees ban is likely to lead to an increase in the number of agents operating
below the radar, with no high street or meaningful on-line presence. Some landlords will be
tempted to deal with agents who do not operate to the required professional standards.
Some may decide to manage their own properties, without being fully competent to do so.
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It will also lead to a decrease in the paralegal role of the letting agent in providing advice to
tenants. Tenants will, as a result, have to source paralegal services elsewhere.
Poor practice and reduced service levels may lead to more complaints to the redress
schemes, as well as problems with deposits. It is also likely that tenants and landlords will be
involved in more legal disputes.
Poor practice in tenant referencing is a major risk to the PRS. It is likely to result in more
unsustainable tenancies. Unsustainable tenancies mean higher arrears, greater prevalence
of anti-social behaviour, more disputes and increased number of evictions. There will be
wider social costs associated with this, not just costs to tenants and landlords
Tenants’ access to redress schemes may be diminished, as they will no longer be a direct
customer of the agent. Furthermore, if more landlords decide to self-manage, more lettings
will be taken out of the scope of the redress schemes entirely. If tenants are no longer to be
the paying customers of agents, following the fee ban, they might no longer be able to seek
redress on issues such as referencing, tenancy negotiations and inventory.
DCLG Question 9
Do you agree that the ban on letting fees should be enforced by Trading
Standards? If not, how do you believe the ban should be enforced?
If Trading Standards are to enforce the ban, it will be important for them to be properly
resourced. We are concerned that this will not be the case, given the track record of Trading
Standards in recent years. Our survey found that a third of local authorities allocated no
staffing resources to this work in 2016/17. Furthermore, almost two thirds of local authorities
anticipated no changes in the level of staffing resources in 2017/18.
If the ban cannot be enforced, due to lack of resources or lack of clarity in the terms of the
ban itself, it could result in a situation where compliant agents are placed at a disadvantage
when competing with non-compliant agents for landlord business. This could potentially
result in compliant agents being driven out of business. There will, then, be a pressing need
for complete clarity in the exact nature of the ban. Equally important will be the inclusion of
detailed enforcement arrangements in the final proposals. In this context, we would draw the
Department’s attention to the NALS enforcement tool kit.
This toolkit is designed to assist local authority enforcement officers to take effective action
to tackle rogue letting agents that fail to comply with the law.
We are also concerned about how complaints and redress will be handled if the tenant no
longer has a link to the letting agent. There may be a “non-fiduciary” duty to the tenant, but
this is a weaker link than if the tenant is a paying customer. Further work should be
undertaken looking at redress and protections for the tenant.
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Question 10
Would you support greater data sharing on rogue agents and landlords across
organisations in the letting sector?
NALS would welcome wider sharing of publicly available (i.e. not restricted to Local
Authorities) data about rogue agents and landlords and would also welcome the
establishment of a data sharing facility among referencing providers, which would identify
bad tenants.
Question 11
Would you support the introduction of a lead enforcement authority for letting
agents to develop advice, standards and guidance and to share information?
Please include reasons.
NALS would support the introduction of a lead enforcement authority for letting agents to
develop advice, standards and guidance and to share information. This is because we think
similar initiatives, such as the setting up of the National Trading Standards Estate Agency
Team, have yielded some positive results, in terms of making enforcement of regulations
more coherent and effective.
Question 12
Do you think that the penalty for non-compliance with the ban on letting fees for tenants
should be (please tick all that apply):
a) a civil penalty of up to £5,000 in line with the penalty for non-compliance with the
requirement to belong to a Government-approved redress scheme or non-compliance
with the transparency requirements of the Consumer Rights Act 2015;
b) a civil penalty of up to £30,000 in line with the civil penalty for committing a banning
order offence;
c) a banning order offence under the Housing and Planning Act; or
d) Other (please list)?
We are unable to comment on what the maximum penalty should be.
Given the dire funding situation recently highlighted in Trading Standards Today (April 2017),
we would encourage the government to work with local authorities to establish the true cost
of developing and implementing the necessary enforcement regime. In the event of a
Tribunal appeal, we understand local authority legal costs can often exceed the maximum
£5,000 penalty permitted under current legislation. This can leave the council out of pocket
and dis-incentivise enforcement activity.
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We do not think that the proposed civil penalty upper limit should be considered in isolation
from those penalties already available under the Consumer Rights Act 2015 and sections 83
to 88 of the Enterprise and Regulatory Reform Act 2013. We think these offences are of a
similar magnitude and so the penalties should be set at a similar level. We acknowledge
there may be justification for reviewing and potentially increasing the maximum civil penalty
for all these offences.
Likewise, we think that rogue letting agents that have failed to join or have been expelled
from a government approved redress scheme or failed to abide by other regulatory
requirements should be subject to appropriate sanctions. Depending on the severity of the
breach, sanctions should include action by the agent’s redress scheme, their accrediting
organisation (if any) and the ability of the enforcing authority to apply for a banning order
under the Housing and Planning Act 2016.
DCLG Consultation Question 13
Do you think further action is needed to regulate the letting and management
agent sector in addition to the ban on letting fees paid by tenants? What additional
action do you think should be taken to regulate the sector?
NALS is strongly of the view that the government should introduce a comprehensive and
coherent regulatory framework for lettings agents. We would, therefore, be supportive of
measures such as:




a national register of agents
a principles based code of practice
requiring agents to comply with training requirements
fit and proper person tests.
NALS believes that introduction of primary legislation solely to implement a fees ban would
be a missed opportunity. Instead, we think government should use the legislation to
introduce regulation of agents across the full range of issues that affect tenants. In our view,
it is not in the interest of tenants, landlords or agents to continue to introduce piecemeal
measures, which will not improve the sector as a whole.
In light of this, NALS urges the Government to take time to consider the wider implications of
the proposed fee ban. In order to ensure a stable sector and fairness for all, NALS believes
that the proposed ban should be re-examined, within the wider context of regulation of
lettings and management agents. An overarching regulatory framework could embrace
measures such as mandatory Client Money Protection, as well as transparency and
reasonableness in fees to landlords and tenants
Proper, comprehensive regulation could also set minimum requirements for handling clients’
money and charging of legitimate fees set at capped levels. It would provide a level playing
field on which agents could compete, to attract tenants as customers as well as landlords as
clients. By contrast, a fees ban alone may result in more agents operating “below the radar”.
Proper enforcement will be essential, but would be better focussed if it took place within a
wider-ranging regulatory framework. In our view, options for future regulations should
include:
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


Establishing an independent statutory regulatory body
Regulation delivered through powers by delegation to Local Authorities or other
designated bodies
Mandatory schemes administered by membership bodies
Elements that would be key parts of any holistic regulatory framework include:







Financial and accounting standards together with provision for random audits
Mandatory Client Money Protection
Complaints and Redress
Deposit Schemes
Training and Qualifications
Accreditation of tenant referencing firms
Codes of practice.
The measures described above would provide for a more equitable market in the PRS and, if
implemented in a comprehensive and coherent framework, would effectively provide for
greater competition among all agents and ensure real choice for tenants rather than the
limited proposal in the consultation document.
Redress schemes would also have a key role to play in the regulatory framework. There is a
risk that, if tenants are no longer to be the paying customers of agents, following the fee ban,
they might no longer be able to seek redress on issues such as referencing, tenancy
negotiations and inventory.
FORWARD PLANNING AND TRANSITIONAL ARRANGEMENTS
The paper says little about implementation planning or transitional arrangements. However,
any pre-announcement of an implementation date will cause a significant lull in the market,
as tenants delay decision making until after the fees ban is scheduled to come into force.
On the other hand, an immediate or retrospective ban may lead to refunds being due.
Tenants who have paid fees just prior to the effective date may also claim unfair treatment.
It is arguable that piloting of the scheme should be carried out in a specific area, in order to
identify and manage the risk of any unintended consequences. Phased implementation may
also be desirable, with agents being able to charge for some services for a period.
National Approved Letting Scheme, Cheltenham Office Park, Hatherley Lane, Cheltenham GL51 6SH
01242 581712
[email protected]
www.nalscheme.co.uk
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